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Government Business

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Neo-liberalism is responsible for most of the global economic problems we are experiencing today. Discuss. The US supreme mortgage crisis triggered a global economic crisis, which brings serious challenges around the world. As for the cause of the crisis, except for imperfect financial regulation, the real estate bubble and the overcapacity of global economy, the neo-liberalism is undoubtedly to blame. Nowadays, neo- liberalism refers to the economic term of legislative market reforms such as deregulation, appropriation, free trade, and reducing government control of the economy (Taylor and Jordan, 2009, up.

49). This essay is going to analyses whether no-liberalism is responsible for most of the global economic problems we are experiencing today. It is expected that this essay could contribute to the comprehension of the influence of neo-liberalism. Firstly, with regard to the relationships between free market and government intervention, neo-liberalism emphasizes the spontaneous regulation of market mechanism. It articulates that only market can achieve high efficiency as a resource configuration tool.

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Besides, the economic Intervention of government not only can not remote economic stability and growth, but also will limit the self-perfection and self- regulation of the market.

Neo liberalism advocated market should be deregulated, and more open to international trade and international investment, with the free movement of capital, currency, and services (Friedman, 2002, p. 8-21). Hence, it is indicated that if neo-liberalism caused financial crisis, the spontaneous regulation of market mechanism is supposed to be the main reason while government intervention was eased.

Put this theory Into practice, let us analyses the US sub-prime crisis. Since the sass, the neo-liberalism promotes the market oriented operation of exchange rate and Interest rate, In response to changes In the risk from market price. The prevalence of neo-liberalism is one of the important powers to promote the development of financial derivatives. The over optimism on market oriented economy could result in financial crisis. In the perspective of neo-liberalism, speculation can be associated with financial derivatives to increase markets liquidity, which is a very important condition for the better performance of market functions.

Therefore, in the two aspects of hedging and speculation, the full support of neo-liberalism of financial innovation promoted the rapid development of financial derivatives, which triggers the US sub-prime crisis (Karaoke, C. , 2008, IPPP). Besides, the burden of make loans to buy a house rises with the rise on interest rates, the price of real estate mortgage falls due to a drop In the housing market. As a result, because of insolvency the buyers went bankruptcy, and a lot of such defaults caused massive losses In financial Institutions.

Judged from the this perspective, It seems that It Is Indeed that neo- verbalism is responsible for most of the global economic problems due to the free and free market. However, it should not be neglected that government regulation also contributes to this crisis. Honestly speaking, in the financial crisis, the financial derivatives, to a certain extent, played the role of scapegoat. Neo-liberalism believes that, speculation usually occurs when there are macroeconomic policy mistakes, so speculation can force the government to adopt sound economic policies.

As the neo-liberalism suggested, in this crisis, the expectation for the increased price of the mortgaged ropey and mortgage house prices weakens the risk awareness of all market participants (Harvey, 2005, p:85). In that the financial regulatory authorities like governments and financial institutions make regulations to ease the terms of the loan, the rapid expansion of housing mortgages contributed to the formation of the real estate bubble. In the end, the bursting of the housing bubble, lead to the occurrence of the supreme crisis.

Therefore, it is illustrated that the government Intervention also contributes to the financial crisis through easing the terms of the loan. To some extent, the macroeconomic policy mistakes worsen the situation of the crisis. So, neo-liberalism is partly responsible for the financial crisis we experience today. Secondly, neo-liberalism demonstrates cutting government spending. In the name of reducing government function, Neo-liberalism advocated to reduce government spending, strictly controlling the money supply, and to reduce many government regulations.

Other policies involve cutting public spending on education, health care and other social services. Meanwhile, neo-liberalism mentions the importance to rote the rights for private property and advocated appropriation (Eng, 2006, p: 34-35). It is believed that appropriation is the best policy. Neo-liberalism advocated the implementation of comprehensive “appropriation movement”, in which state-owned enterprises will be sold to private investors, including Banks, railway, taxable roads, electricity, schools, and hospitals. However, the thoughts of neo-liberalism result in negative impacts for countries.

On the one hand, the appropriation sharpens social problems and contradictions. The mass appropriation and adjustment of industrial structure could lead to large increase n unemployment (Friedman, 2002, p. 8-21). On the other hand, appropriation enlarges the gap between the rich and poor and damages some of the social welfare for the residents. Unemployment as well as welfare decrease are likely to trigger financial crisis, and even worsens the situations during financial crisis. Moreover, the free flow of capital, freedom of selling and buying bonds, and the establishment of new financial products, resulting in huge profits for investors.

However, the excessive capital profits are mainly invested into real estate and financial industry. This could further increase the price of real estate and make residence unable to purchase. It thus causes and enhances the possibility of financial crisis. Although the neo- liberalism took all measures to compress social spending, yet because of the Increased unemployment rate, the financial burden did not actually contribute to the economy development, thus leads to financial crisis. However, neo-liberalism could help to ease financial crisis.

First of all, it curbs Inflation and promotes enterprise profit. And the reduced inflation rate created the notations to improve profit margins. Second, appropriation promotes the changes of social structure. Most of the state-owned enterprise improves the efficiency after appropriation. At the same time, government reduced the subsidies to state-owned enterprises while gains taxes from private enterprise, thus improving its fiscal situation. In addition, the publicity of shares, and the workers being shareholders could relieve the contradictions during financial crisis, and safeguard social stability. Hired, the relaxation or cancellation of restrictions on companies improves business activity, prompts companies adhere to the laws of the market economy, and strengthens internal restructuring and reform. Therefore, it could help to ease and relive the financial crisis problem. Thirdly, neo-liberalism accelerated the process of economic globalization. Neo- liberalism trend began in the early sass, when the start of the globalization. Neo- liberalism advocates the liberalizing of trade and capital.

Under the influence of the policy, since the ass, the developed countries and developing countries have eased restrictions on international trade and capital. From the micro perspective, in the era of globalization, the high productivity of developed countries are collected Ninth lower labor costs in developing countries, showing the mode of lowest cost and highest revenue (Hieratic, 2009, p. 19). From a macro level, the globalizes supply and demand realizes the effective allocation and utilization of resources.

Under the Influences of the above two factors, the global economy experienced a stable period of high-speed growth. However, globalization impacts on developing countries and developed countries at Obviously different degree. Throughout the sass and ass, the economic development of developing countries has experienced ups and downs and the economic growth in these countries ushered in the continuous of the financial crisis, like the ass Mexican financial crisis in 1997 and the Asian financial crisis which shows the cycle of boom and bust.

The appearance of financial crisis shows that in developing countries, globalization has the characteristics of high and high risk (Paul, R. , 2008, p. 102). And the globalization brings the crisis in developed countries easily to developing countries in a very easy way. Developing countries are increasingly ‘alienable to the impacts of financial crisis due to globalization and the negative Influences could be exacerbated and long lasting. Moreover, with the development of information technology, the appearance of multinational company accelerates the development of globalization.

The prevailing Mind of merger and acquisition further collects companies in developing and developed countries. The economic globalization tide encouraged governments to sell shares in state-owned enterprise income funds into high-tech fields, thus 14-15). Currently, it is widely believed that the crisis is caused by the mistakes of U. S. Government policy. This opinion ignores the effects of structural changes on the financial crisis. It is globalization that brings the world changes on economic structure and transfers this trend from developed countries to the developing countries.

Meanwhile, the changes on economic structures further induce the Imbalance of payments deficit between developing and developed countries, which is one of the important causes of the financial crisis (Mirror’s and People, 2009, p. 14-15). From this perspective, imbalance of payments deficit often moves from developing country to developed country, which means that the part of the financial risk and economic cycle fluctuation moves from the former to the latter at the same time.

Therefore, it is indicated that the globalization results in the transfer of financial crisis between developed and developing countries, which widens the scale and deepens the impacts of the crisis. In conclusion, the recent international financial crisis triggered by US supreme mortgage crisis of the have made worldwide countries trapped in a multiple economic, social and political crisis. Face the economic recession in terms of high unemployment, poverty explosion, strikes and protests activities, the mainstream ideology of the neo-liberalism get criticized.

Cite this Government Business

Government Business. (2018, Jan 03). Retrieved from https://graduateway.com/government-business/

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